National Grid’s lobbying over the latest pricing proposals from OFFER,
appears to have cut little ice with the regulator says Tony Carlisle,
chairman of Dewe Rogerson
‘Extreme and unacceptable’ said the National Grid Group of the pricing
proposals from the industry’s watchdog, Professor Stephen Littlechild.
So, is their lobbying going to soften the proposals or take National
Grid to the MMC?
National Grid is faced with a proposed new price control regime, which
could cut its revenues by over pounds 1 billion over the four years from
The history of utility regulation tends to suggest that the companies
have consistently been able to generate greater profits, through greater
efficiency gains, than were contemplated by the regulator when he
installed the price control regimes.
The public perception is that the beneficiaries have been
disproportionately the shareholder and top management and National
Grid’s arguments have cut little ice with the regulator.
Proposals, involving a 20 to 26 per cent one-off cut in the cost of
bringing power to the UK plus an inflation minus four per cent price
control for the following years have been tempered; but not by much.
The ground given by OFFER is probably significantly less that City and
other observers were expecting, and less than the sound and fury of its
early reactions suggested that National Grid wanted.
Encouraging a campaign of shareholders writing to OFFER was one National
Grid reflex - but only some 2,000 apparently did so and, while their
posture was predictable, the impact has been muted. So, indeed has been
the lobbying campaign in recent weeks.
Perhaps this is no more than waiting to see the terms of reference for
British Gas’ forthcoming MMC inquiry. Maybe it will help National Grid
decide to accept OFFER’s terms or fight the case through a MMC process.
For National Grid, the problem remains that it is seen as the ultimate
monopoly. It has undoubtedly achieved significant efficiency gains. It
has failed however, to persuade there is not more fat to shed; and so
far it has failed to alter the regulator’s view of this.
Warnings of blackouts as a result of too many job cuts are probably
seen as alarmist and ‘the company would be mad not to accept it’
(OFFER’s proposals) is probably closer to the City’s views, where
expectations remain that National Grid should still be able to grow
dividends by up to eight per cent under the proposed new regime.